Inherited Tenants Tips?

Question

Hello fellow BP members!

I have been looking at small multi’s in my area to get a feel for the pricing in my market and see what’s available. I will be going for an owner occupied scenario for my first property (house hack) and have noticed that in most cases I will more than likely need to inherit tenants as the units are filled 90% of the time. Does anybody have some tips on how to ensure you’re not about to get into a horror story situation? Anybody have some horror stories pertaining to this they would like to share? I know if it’s not working out you can ask they move on once their lease is up but I’m just looking to learn a thing or two on this topic if possible!

Hope everyone’s having a safe and productive quarantine!

Adrien C. · Answer

I've had great inherited tenants and some really bad ones. The biggest thing is to set proper expectations up front. In the introduction letter which I send the day of closing, I introduce myself and company. I let them know what they can expect of me and vice versa. It sets the stage from day 1 and then I follow through on those expectations. If the tenants aren't the best, you'll hear "but it wasn't like that with the old landlord or they allowed me to do this or that." Estoppel letters are a must of the appliances you thought you purchased with the building will grow legs and walk away. One fear existing tenants have is being kicked out or rents raised. I tell them from day 1 I have no desire to kick them out if they agree to the expectations of being one of my tenants. Typically they are below market rent but the quality of their unit/home reflects that. So I ask them if there's anything they'd like fixed. Most of the time, they just want a fresh coat of paint. So i'll paint it and replace a light or two- just a bunch of little stuff. Then bump the rent $30-50 or whatever makes sense. Hope this is helpful.

Joe P. · Answer

You can never be sure of anything. With inherited tenants, it gets even tougher, as you will most likely not get to disturb them or even meet them prior to sale.

Information is key on anything and everything -- try to find out their name, maybe see if they have a social media. The stuff people post is always interesting to me, showing pictures of the unit you're about to purchase in the background.

You can also ask for the property to be delivered vacant as part of sale. Then this person is welcome to reapply with you either during escrow period or otherwise -- although I don't think this is common, it gives you a chance to meet them and put them on your terms versus the previous owner/landlord, who is probably absent at this point.

Bud Gaffney · Answer

@Nicholas Smith Hi Nicholas, great question/concern. I’ve inherited many tenants, and for the most part it works out fine. I would just make sure you have copies of their leases and send a letter/knock on their door to introduce yourself and set proper expectations going forward. Tenants love to be respected just like the rest of us. Good luck!

Anthony Wick · Answer

@Nicholas Smith. ALWAYS include in the purchase agreement that no new leases, or changes to current leases, can be made. It doesn't matter when their leases end, or how much rent they're paying. It's an automatic line in the PA, just like it is to ask for security deposits and prorated rents.

Then, if you suspect any problems with the current tenants, and they are on MTM, or their lease will expire with 30-60 days, you have the seller give them notice to vacate. And you put in PA that unit must be delivered empty and broom clean. If not, the close will be delayed.

After close, if you do inherit a tenant (good or bad), you do a thorough walk through of their unit, just like a Move In checklist. And you get them under your lease asap. And you take care of the deferred maintenance. There will always be deferred maintenance.

Karl B. · Answer

It always helps to know how long each tenant has been in the property. If all are fairly new it could be a red flag as the PM/owner went easy on their rental applicant standards simply to fill the vacancies so the property would appear more enticing to a potential buyer.

Though of the tenants I've inherited the majority have been good and each had resided in the unit for a few years.

My horror story of BY FAR the worst inherited tenants: the guy was a drug dealer and he and his girlfriend were on heroin. The girlfriend ended up committing suicide less than a month and a half after I purchased the property.

After this happened, the boyfriend wanted to move out, which was fine as they were becoming problematic prior to the tragedy.

Roy Cleeves · Answer

@Nicholas Smith You can put right into the contract that there are no disputes or late or owed rent with the current tenant however that is just to help you.  The best way is to meet as many of the tenants as you can when you visit the property.  Ask them how long they have lived there.  Do they plan on staying?  Is there anything with the property that should have been looked after that has not been done?

Review the tenants application and renal agreement before firming up your purchase.  That application will tell you a lot and ask if the seller has their credit bureau as well.

I have bought a few that have come with tenants and they have worked out fine so far.

Best wishes.

Craig Sloan · Answer

@Nicholas Smith I live near Ft. Wayne, Indiana now.  Good luck.  Feel free to reach out if I can be of assistance in the future.

Marc Winter · Answer

@Nicholas Smith, you should have copies of the leases or estoppel letters and carefully read them.  You normally will have the right to do a walk-thru prior to closing.  Take photos of the rooms for your own records.

Study and memorize the key points of your local landlord/tenant laws.  Be cordial and professional in your dealings with the tenants. Correct--be friendly but do NOT make friends with them.

If you really want the virus scared out of you, watch the movie "Pacific Heights".

Best of luck!

Craig Sloan · Answer

@Nicholas Smith congrats on looking for your first property.  I grew up in St. Thomas ON so I know your market a little.  Good for you if you can afford a multi-family in the area.  @Joe P. is right, try to find out everything you can about the tenants before you purchase the property.  We screen our people more than most so inherited tenants are almost always our worst tenants.  I would try to find out when their lease expires and include in the purchase agreement that the seller not renew any leases once the property is under contract.  Once you buy the property I would meet them asap and issue them a notice that you are the new owner of the property and what you will require of them.

Nicholas Smith · Answer

@Craig Sloan

Really great tips in there Craig thank you! And great to hear you’re from my area! I was thinking of looking in St Thomas as well as I’m sure you know the prices in London are extremely high and it will be quite tough to meet the 1% rule at this time but I’m hoping the agent I have recently connected with (that claims she specializes in off market multi’s and works with investors) will be able to help me find something to help get my feet wet and hopefully be cash flow positive even a bit off the get go. I will definitely take into consideration the tips you have laid out and ensure my level of intention in terms of screening and tenant behaviour is made clear shortly after closing on my first deal!

Thanks so much!

Nick Smith

PS; (Where are you investing now if not in Ontario, if may ask?)

Inherited Tenants Tips?

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